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The decay of brand equity

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The decay of brand equity

Although they may have ceased their commercial activity, brands do not immediately lose their assets. Learnt through time, their brand image is not erased from consumer’s long-term memories. Indeed, after many years a brand can still evoke a number of positive or negative associations. What is lost however is the key brand asset: brand salience, the capacity of the brand to be evoked spontaneously in consumer’s minds as soon as the need to buy the product type appears.

This is why belonging to the consumer ‘evoked set’ (or consideration set) is a key measure of brand equity, signifying both brand presence and its perceived unique relevance for that need.

Table below illustrates how brand equity decays over time. Brand X is a FMCG food brand in a very popular category (with almost 100 per cent penetration). Until recently, this brand was the number two in its market. Then it was bought by market number three, which immediately sold all Brand X’s factories so that the acquisition of the brand paid off immediately. Most important, it discontinued its activity and as a result became the market number two in volume and number one in value.

Eight years after the end of any kind of commercial activity, the brand equity had not disappeared.  Top-of-mind awareness had dropped from 13 per cent to 5 per cent and aided awareness from 86 per cent to 55 per cent. Interestingly, there are still 13 per cent of consumers who declare that they have bought it at least once over the preceding 12 months. This latter figure casts doubts on the validity of such indicators of brand equity in this FMCG category: it seems to be a mere reflection of spontaneous awareness.

How brand equity decays over time

How much would this brand be worth if its owner decided to sell it? Not far from zero. The owner would never take the risk of selling it so that it could be revived in its own market. Out of this market, it is just a name with faded remote credentials: there will be no buyer. Could the owner itself revitalise that brand? Probably in specific segments or niches. As far as the mainstream market is concerned, a return to the shelves would be impossible.

They are now overcrowded, first by private labels, and second by the few remaining producer’s brands, which have become megabrands. Typically, a shift of channel would be possible. For instance, a drink brand might be sold via on-premise distribution (for consumption in canteens and business restaurants), if this were a channel where it could add value without meeting fierce competition. Channel and use changes are a classic form of revitalisation for this very reason.

This example illustrates a fact too often overlooked: the value of a brand does not lie in its assets, but in the ability of a company to make a profitable business with these assets. After eight years of inactivity the whole commercial environment will have changed. Nature abhors a vacuum, and business does too. As soon as the brand disappears from the stores, the shelves are filled with other products from other brands, including the distributor’s own brand.

In order to sell the original again, they would need to be displaced. It costs a lot to induce the modern distribution to reallocate space for a comeback, with very little guarantee of success. A brand is not enough to stage a comeback, one needs an innovation.

It is clear why it is essential to prevent decline, and how a brand loses value after a period of inactivity. But what are the factors of decline?